After they pay rent and taxes they have about $1,500 or $388 a week for everything else.

Since this is my first property purchase ever, I wonder how escrow accounts, etc for property taxes would work.  

You may not include income earned that is not on a tax return, an administrator or PHA may consider additional income in that household, a teenager may mow lawns or receive child support that may influence funds available to that household. 

@Mike Sivert You are entitled to take the deduction for mortgage interest, property taxes, insurance and anything paid out of escrow, assuming your sub2 deal is written appropriately.

Being able to 1031 it into something larger would pay great dividends down the road, not to mention starting a fresh a depreciation cycle on your tax cycle. 

You need to talk with your attorney and tax advisor to determine the best structure for you and your goals.One big positive in LLCs, even though the cost to finance is much higher (more down and higher interest rates), when you get commercial loans, they will no longer be on your credit report.  

What is the tax treatment with respect to reporting, depreciaiton, etc.

Tax benefits, good investment possibility, cashflow.

Income tax: A foreign investor receiving rental income from U.S. real property must pay income tax.

In your particular case, I would consult with a local eviction attorney to get their take on the local laws and regulations.Nonetheless if a tenant tried to pull this on me, I probably wouldn't want them as a long term tenant in the future.